Environmental judicial reform and corporate investment behavior — Based on a quasi-natural experiment of environmental courts

Ensuring the effectiveness of environmental legislation and regulations necessitates enhancing the professional caliber of the environmental judiciary. Utilizing a multi-period difference-in-differences model, we explore the impact of environmental judicial reforms, exemplified by the establishment of environmental courts, on corporate investment behavior. We find that firms in regions with established environmental courts significantly increase their environmental investments and productive investments, while financial investments remain unaffected. Mechanism testing reveals that the environmental court affects corporate investment by strengthening local government environmental enforcement and promoting public environmental participation. Furthermore, the marginal effect of environmental courts is more pronounced in regions with fewer environmental regulations and lower economic development levels, as well as in state-owned enterprises. Compared to collegiate benches, environmental resources judicial tribunals exert a greater influence on corporate investment behavior. This study adds to the micro-economic analysis of environmental judiciary by providing empirical evidence on how formal institutional frameworks impact corporate investment behavior.